Take a hard look at those management fees

Sunday

Aug 28, 2011 at 12:01 AM

DEAR BRUCE: We are both retired, I am 73, and my husband is 76 years old. The only pension we have is Social Security. We have a fixed annuity that we are planning to annuitize this year, and we will receive about $15,000 for the next 10 years. We also have about $320,000 in a conservatively managed fund and about $40,000 in a savings account that we use to subsidize our Social Security. My question is, should we be doing something safer with the $320,000 than have it in the market? Even though it is a very conservative portfolio, we pay 1.5 percent to have it managed. I would love a second opinion.

DEAR BRUCE: We are both retired, I am 73, and my husband is 76 years old. The only pension we have is Social Security. We have a fixed annuity that we are planning to annuitize this year, and we will receive about $15,000 for the next 10 years. We also have about $320,000 in a conservatively managed fund and about $40,000 in a savings account that we use to subsidize our Social Security. My question is, should we be doing something safer with the $320,000 than have it in the market? Even though it is a very conservative portfolio, we pay 1.5 percent to have it managed. I would love a second opinion.

L.L., via email

DEAR L.L.: There are as many answers as there are questions when it comes to "good retirement planning." I am wondering why you're changing this fixed annuity that apparently has a value of under $150,000. At your ages, it's statistically likely that one or both of you will be here for more than the 10 years. I would have to know the specifics of the fixed annuity that you have now and whether this is a decent move for you.

As I am reading your letter, there have been some large hiccups in the stock market. I am not at all certain what "conservative" means. A 1.5 percent management fee is a bit expensive given that the money could be put into a portfolio of funds without individual management. If the managers are moving the funds from one to another, taking market conditions into account, and there is a decent return (3 percent to 5 percent), the management fee is money well spent. On the other hand, if there is only a net return of 1 percent or 2 percent, which is very common today, then I would think that the 1.5 percent management fee is excessive.

DEAR BRUCE: My mother is nearing 90 years old, and her health has been slowly deteriorating. She has never put together a will and really doesn't like even talking about it. She doesn't trust anyone, and this makes it very difficult to even know exactly where things are or what she wants to take place after her death. I am the youngest of five siblings. I talk to my mom twice a day but live quite a distance away from her. She doesn't want to move in with me so I can take care of her.

My other siblings rarely call her, but they call me all the time to make sure that she has things in order. They are already fighting over things. My mother gets overwhelmed when it comes to writing down her wishes. She just does nothing and tells me to tell everyone that everything is to be split evenly among the five of us.

Here is the problem: She owns a restaurant, land, a large home and several acres that are filled with lots of stuff in Canada. She also has some Canadian bank accounts. She says that someone is holding money from the sale of my grandmother's home in Canada, but she can't seem to remember his name. She owns her home in Florida, which is full of stuff, with four lots that take up almost the whole block, bank accounts and god knows what else.

My mother and I would like your opinion on the reality of this situation legally and how she could fairly split her belongings among five children without all the fighting. I know personally that when my mother passes it will be very hard for me to get through, and the last thing I want to deal with is fighting and not knowing what to do.

J.J., via email

DEAR J.J.: You need to try to persuade your mother to have a will drawn by an attorney. Everything regarding her assets is so convoluted; a competent attorney can clear it all up in her will. She has assets in not only a couple of states but also two countries. There is no question with regard to your siblings that there is going to be a fight.

The very first thing you should do with your mother is visit her. Explain the circumstances: that she may not trust anybody, but if she doesn't trust someone (hopefully you), her death is going to drive her children apart. If she is mentally able, she may want to make specific legacies in her will: where the furniture goes, etc. You get what I am saying. If none of this is possible, at the very least she ought to give you power of attorney and create some type of a simple will. That won't do the job, but it could be helpful and give you something to work with. You would be named the executor of the estate.

If she leaves things in their current state, her estate could drag out for years. All of this needs to be pulled together, finding out what laws apply given the two countries involved, real estate and other matters. It is going to be extremely difficult and expensive to settle. You may persuade her just on the argument that this is the least expensive way to go.

There are so many people who, even nearing their 90th birthdays, are not able to face the fact that they, like all of us, will die, and you have to acknowledge death in writing when a will is drawn. I would not try to do this on the telephone. I would make it a point to go see her and invite the others to join you if they wish. Good luck. You might acquaint her with a quote: "If you really hate your family, leave everything as fowled up as this is." The way to start untwisting is a properly drawn will.

DEAR BRUCE: I am a 47-year-old schoolteacher, no kids and never married. I have been out of debt completely for several months. I have about $15,000 in liquid assets and $12,000 in my emergency fund. I have about $20,000 in my nonliquid 403(b) accounts, $5,000 or so in mutual funds and a small Roth IRA that I just started. I have another $6,000 in surrender value in a life insurance policy. My income is $60,000 a year. Being out of debt, I believe I am finally able to create a situation where I can build enough wealth over the next 10 to 15 years (including my pension) to achieve financial security. One thing that several people have told me I am wrong about is the idea of using homeownership as a powerful way to build wealth. I have never owned my own home. Circumstances over the years have prevented me from being in the market.

I have been renting a house for several years now, and it has been a good deal. I pay reasonable rent, plus all utilities, water, sewer and fire charges. I will at some point have an opportunity to buy this place. At my age, I believe it is a bad idea for me to saddle myself with the costs of owning a home. It will not only put me into substantial debt, but it will also increase my monthly costs dramatically. I expect to live in this house until I die. I will never be able to see the equity/cash in the house. It may or may not generate over time. In this economy, the house values will not rise in the next 20 years the way they have the past.

Am I missing something here? If I were 25 years old, this would be different. The house would be almost paid off by now.

Lee, via email

DEAR LEE: An entire generation of people has never seen large hiccups in the real estate market. The idea was that homeownership was the best way to build family wealth. While that might have been true, it is clearly not the correct way to increase your worth. If you're going to buy a home, your motivation should be enjoyment in life, not profit. It would appear you are in a home you like, you are renting for a reasonable rate and the home will continue to be available. If all of those assumptions are correct, then why in the world would you want to buy? There is little question that over a period of time, the difference you would pay owning a home, paying a mortgage, paying for major maintenance, etc., would appreciate nowhere near as quickly as long-term investments in the marketplace. I am sure you can find exceptions to this.

If you wish to secure the home so you can be assured that you can live there, and if there is some question that it might go away if you don't purchase it, that's one thing. But looking at your situation from a straight numbers point of view, I believe you are doing very well, and I wouldn't upset that.

Send your questions to Smart Money, P.O. Box 2095, Elfers, Fla. 34680, or send e-mail to bruce@brucewilliams.com. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.

COPYRIGHT 2011 UNITED FEATURE SYNDICATE

DISTRIBUTED BY UNIVERSAL UCLICK FOR UFS

1130 WALNUT ST., KANSAS CITY, MO 64106; (800) 255-6734

FROM UNIVERSAL UCLICK

FOR RELEASE: TUESDAY, AUGUST 23, 2011

SMART MONEY by Bruce Williams

SHORT-SALE WAIT COULD LEAD TO WEDDED ABYSS

DEAR BRUCE: My girlfriend and I plan to get married. She has a condo that is "upside down" and is possibly doing a "short sale." Are there any advantages/disadvantages to doing this after being married? We live in California. — Lance, via email

DEAR LANCE: I see no advantage — and some very definite disadvantages — to waiting until after being married to do a short sale. The chief disadvantage is that once you are married (even though your finances may be separate), it's possible that negotiating a short sale can reflect on your credit as well as your fiancee's. If your credit is already down the drain, I suppose it doesn't matter much. I would get it done before the nuptials.

DEAR BRUCE: I have been married for 28 years. My husband is in an assisted-living facility. He is 89 years old and receives $1,461 a month from Social Security. I am 81 years old and living independently in a city about 150 miles from him. I receive $734 a month from Social Security. Unfortunately, I started drawing early at age 62, because at that time my husband encouraged me to. I'm disabled and considering moving to an assisted-living facility because of my health. Please tell me whether there is any way I can change my options to draw against my husband's benefits. My rent is much more than my monthly income, and I need help. — Jeanne, via email

DEAR JEANNE: When you started collecting Social Security at the earlier date, you received a reduced benefit. If you live long enough (as you have), you reach a point where that didn't work to your advantage, but there is no way of knowing in advance.

It's possible you can have your account re-examined. You may be eligible to collect under your husband's account number, which could result in a higher monthly statement. Unhappily, the only way that I know to determine this is to either write to or visit a Social Security office in your area.

There is no right answer to your question. All the variables, such as how much you made and how much he made, will determine whether your monthly Social Security could be increased. Yes, this could be done on the telephone or computer, but my experience tells me that you are far better off investing the time to talk to someone in person. It may take a couple of trips, but it is better to talk to one of the representatives eyeball to eyeball. I wish you well.